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Investor's Business Daily.

Issues & Insights
Frivolous Lawsuits Creating New Power Class Lawyers
June 13, 2003

by David Isaac

In "
The Rule of Lawyers: How the New Litigation Elite Threatens America's Rule of Law," Walter Olson describes trial lawyers as government's fourth branch with its power, through massive class-action suits, to create new laws.

Indeed, this is the boast of the fourth branch. It breaks up partisan gridlock. It "gets things done."

But Olson asks the question: "If just getting things done is the main priority, why then do we go to such lengths to constrain the powers held by 'real' government officials?

"The answer, of course, is we do not for a moment trust these officials to wield the intimidating powers of government office without imposing on them a high degree of transparency and predictability, because we know how likely it is that the power would otherwise soon be abused."

Lawyers may soon also find their powers constrained. On Thursday, the House passed a bill that would in essence move all class-action suits into federal courts and out of state courts a move that could slash the number of frivolous lawsuits against businesses.

IBD recently spoke with the author.

IBD: Economist Hernando de Soto has said for every percentage-point increase in the number of lawyers in a nation's labor force, economic growth is reduced by 3.7% to 4.8%. So was Shakespeare right first thing we do is kill all the lawyers?

Olson: As lawyers enjoy pointing out, Shakespeare put that line in the mouth of one of his villains.

Even Hernando de Soto would agree that up to a certain point, the increase in availability of lawyers to enforce things is an improvement for an economy's efficiency, as opposed to people's complete inability to go to court to enforce any rights.

The question is: When you pass some optimum, does this begin declining again? I think, unfortunately, we passed that point some time ago.

IBD: Would introducing a loser-pays principle be the most important reform we could introduce?

Olson: Yes, it is the most important difference between our system and other advanced industrial democracies. Middle-class people living in Sydney or Toronto or wherever view their legal systems as more predictable.

More confidence is placed in their judgments than here. It ties in with the fact that there is a remedy if someone wrongly litigates against you. We deny people that remedy.

IBD: "Loser pays" means the loser has to pay the legal fees?

Olson: The idea is that you pay a significant share of the cost of response, which includes lawyer fees. It may include things like expert witness fees.

In Norway, they say you have to pay your prevailing opponent for the time they spent showing up in court to testify or respond to you in some other way.

In this country, if you drag somebody into a lawsuit and they have to spend days and days in depositions, and they're vindicated and show they have done nothing at all wrong, they can't get their money for their time or anything else.

IBD: What are the historical reasons the U.S., unlike most countries, doesn't have a loser-pays rule?

Olson: The early 19th century seems to have been the critical period in the decay of loser pays. The best explanation I have read indicates the legislatures were sympathetic to farmers, who at times of agricultural bust were having trouble paying their mortgages.

Mortgages were often held by Europeans, who were not well represented in the American legislatures. By disabling loser pays, which had been a feature we inherited from British law, they reduced the efficiency with which debts could be collected. This was a pro-debtor measure.

IBD: How serious is President Bush about tackling tort reform?

Olson: People notice he didn't do that much in his first two years and some of them have said that proves he never was that serious. I don't draw that conclusion.

First, I look back at his Texas record, and he was very impressive. His way of operating in Texas was to pick three or four issues that he was going to make a big difference on, then batter away, putting enormous effort into those areas.

Texas was a hard state to reform litigation in because it had been the playground of the plaintiffs' bar. . . . To everyone's amazement, a set of strong, significant litigation reforms were soon on their way to passage. Where his record as president differs is that the vote counts in the U.S. Senate have been very discouraging.

But I think he's sending off signals that he never really did forget about it. He was just waiting for the right time.

IBD: Explain how a list of defendants can grow beyond reason. For instance, Hilton Hotels was named in a case where a woman ran over her husband. The suit alleges Hilton didn't train employees to handle the confrontation.

Olson: There's a phrase they call it "blame storming." This is one of the defects in our system. We don't have loser pays, so it's very difficult for people wrongly named to get any sort of relief.

The decision to add a second or third defendant is often inexpensive. You just serve some more documents. You adjust something in your word processor.

Expanding from a lawsuit against one defendant to a lawsuit against several defendants is a very cheap step. However, it is an incredibly expensive step for the defendants you add.

IBD: Reading your book, one is impressed with the arrogance of these trial lawyers. What accounts for this arrogance?

Olson: This is a group of people who have had their own way for quite a while and have succeeded even beyond their wildest dreams.

You wind up with rationalizations for power. Since the system isn't stopping them, it must be they are needed and are doing the country a great service.

If you tell someone that if you build an Eiffel Tower out of tooth picks we'll give you a million dollars, before long they begin having a very exalted idea of the social value of building an Eiffel Tower out of toothpicks.

If you're in the line of work of a trial lawyer, you can probably work yourself into a lather about the wrong-doing of the people that you sue.

From that, it is not a very long step to believing that any tactics you use against them, or any power you use against them, must have been divinely intended.

IBD: Are you a lawyer?

Olson: No, I just criticize them.

©2003 Investor's Business Daily



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